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Judgment
PER SANJAY AWASTHI, ACCOUNTANT MEMBER:
This appeal arises from order dated 14.10.2025, passed u/s 250 of the Income Tax Act, 1961 (hereafter as “the Act”), by NFAC, Delhi pertaining to the AY 2023-24.
In this case, the Ld. AO disallowed an amount of Rs.70,64,178/- on account of a deduction claimed u/s 37(1) of the Act. This amount was paid to one M/s Vishal Cargo Careers ostensibly as part of business expenditure. The Ld. AO apparently attempted to verify the transaction with M/s Vishal Cargo Careers and issued a notice at their Bangalore address. It appears that the verification was conducted at a different address then what was supplied by the assessee to the Ld. AO. Needless to say, the Ld. AO made the impugned addition after not being able to verify the genuineness of the impugned transaction.
The aggrieved assessee approached the Ld. CIT(A) where also he could not succeed mainly on the finding that the said Vishal Cargo Careers was not available on the address given to the Ld. AO. The Ld. CIT(A) has also disbelieved the KYC documents, TDS details, etc. supplied by the assessee, in this regard, on the ground that the primary verification of the identity of the recipient could not be confirmed.
The aggrieved assessee has approached the ITAT with grounds challenging this action of the authorities below.
The Ld. AR brought to our notice that the verification was conducted at 54/3, 3rd Cross, Santosh Nagar, Pipe Line, T. Dasarahalli, Bangalore even when the address supplied to the Ld. AO was 41, 8th Cross, Sanjeevini Nagar, Moodalpalya, Nagarbhavi, Bangalore. It was averred that not only was the enquiry conducted at a wrong address but the KYC details etc. filed of the recipient were totally disregarded. The Ld. AR relied on the case of Airovient Fans and Systems (P) Ltd. reported in 165 taxmann.com 496 (Kolkata – Trib.), authored by one of us, to canvass the point that the documents and evidences supplied by the assessee would be sufficient to merit allowance of the impugned amount u/s 37(1) of the Act.
The Ld. DR relied on the orders of the authorities below.
We have carefully considered the rival submissions and have gone through the records before us. We find that not only did the Ld. AO conduct enquiries at a wrong address but has also disregarded the documents and evidences filed by the assessee in support of his claim of a genuine business outgoing in the shape of the impugned amount. Unfortunately, the Ld. CIT(A) has affirmed this action of the Ld. AO. At this stage, we can do no better than to extract a particular portion from the case of Airovient Fans and Systems (P) Ltd. (supra) in favour of the assessee:
“3.We have carefully considered the rival submissions as also the documents placed before us. It is understood that the income under the head business and profession' would be earned by making certain relevant expenditure. While demonstrably unjustified expenditure could be disallowed, but it is also clear that there are limits to the kind of documentation and evidences that a normal business would be expected to maintain. In this case, the assessee has adequately demonstrated that he has meticulously maintained documents and even deducted tax at source on the payments made to vendors who were associating with him in executing turnkey projects. It is felt that even the Id. CIT(A) has failed to appreciate that there are limits to the kind of evidences that any normal business entity would have with it to justify the expenditure incurred for earning business income. In this case it is felt that the assessee could not have done any better than what he has already done in terms of filing detailed documents to justify the expenditure incurred. We draw strength from two cases of the Hon'ble Calcutta High Court in this regard to show that the burden of proof on the assessee regarding proving expenditure u/s 37(1) of the Act has limits and cannot be mainly disallowed on the grounds adopted by the AO. The two cases are as follows:
a)Ashok Surana vs. CIT reported in (2016) 384 ITR 267 (Calcutta) the head note of which is extracted as under:
"Section 37(1) of the Income-tax Act, 1961 – Business expenditure - Allowability of (Burden of proof) Assessment year 2001-02 appropriate evidence has been adduced, it is not in power of Assessing Officer to arbitrarily disallow any item of expenditure on ground that sums are not verifiable."
b)PCIT vs. Paharpur Cooling Towers Ltd. reported in [2023) 150 taxmann.com 238 (Calcutta) the head note of which is extracted as under: "Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of (Consultancy fee) - Assessment year 2013-14 Assessee claimed payment to a company for management consultancy services-Assessing Officer treated payment as bogus transaction and disallowed claim holding that said shell entity was non-existent at its registered address On appeal, Commissioner (Appeals) noted that assessee had availed services of consultant in connection with contract awarded by BHEL; and that such payments were made by account payee cheques and payment included service tax on invoice and payee was duly registered with service tax department Commissioner (Appeals) further noted that transaction took place in financial year 2012-13, relevant to assessment year 2013-14, whereas enquiry was sought to be conducted for year 2016-17, by which time payee company had been struck off and therefore, Commissioner (Appeals) concluded that inference could not be drawn that payee company was not in existence when transaction was made or that transaction was bogus Commissioner (Appeals), therefore, allowed expenses claimed by assessee Tribunal upheld order of Commissioner (Appeals) Whether on facts, no question of law did arise from order of Tribunal-Held, yes"
4 Considering the above discussions, the appellant succeeds on both the grounds, which basically are on the single amount of disallowance u/s 37(1) of the Act amounting to Rs.1,80,01,565/-.”
Considering the totality of facts and circumstances of the case, it deserves to be held that the assessee has been able to prove that the expenditure under consideration was incurred wholly and exclusively for his business and therefore the same is clearly allowable.
In the result, appeal of the assessee is allowed.